Flood Risk and Differential Firm Investment: Evidence from Dakar, Senegal

Rapid urbanization in sub-Saharan Africa is increasing exposure to and damage from flooding. Many firms located in flood prone areas suffer yearly losses, but they face limitations in their ability to make defensive investments. In a randomized experiment with small firms in Dakar, Senegal, I decreased the cost of investment through vouchers for either cement or wooden pallets. Some firms made their voucher choice in a group setting to highlight potential spillovers from investments. Firms who received vouchers made defensive investments at higher rates. However, only firms who got vouchers in a group setting experienced less flood losses and were less likely to close due to a flood. Furthermore, firms located downhill of other firms who got vouchers individually were more likely to close due to a flood. These results suggest that coordination matters for defensive investments as individuals investments can create negative externalities for those nearby. 2025 AAEA & WAEA Joint Annual Meeting, July 27 - 29, 2025, Denver, Colorado